Question

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Sales in Units
April		72,000
May		85,000
June		112,000
July		91,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 20% of the following month’s sales. The inventory at the end of March was 14,400 units.

Required:

Prepare a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total.

Answer 1

Answer

• Requirement

Production Budget
	April	May	June	Quarter
Budgeted unit sales	72,000	85,000	1,120,000	1,277,000
Plus: Desired Ending Inventory	17,000	224,000	18,200	18,200
Total needed	89,000	309,000	1,138,200	1,295,200
Less: Beginning inventory	14,400	17,000	224,000	14,400
Unit budgeted to be produced	74,600	292,000	914,200	1,280,800

• Working

Production Budget
	April	May	June	Quarter
Budgeted unit sales	72000	85000	1120000	1,277,000
Plus: Desired Ending Inventory	85000 x 20%	1120000 x 20%	=91000*20%	18,200
Total needed	89,000	309,000	1,138,200	1,295,200
Less: Beginning inventory	14400	85000 x 20%	1120000 x 20%	14,400
Unit budgeted to be produced	74,600	292,000	914,200	1,280,800